Watchdog set for radical revamp after coalition calls for reform

Financial Reporting Council chiefs Haddrill and Hogg expected to issue public consultation paper

The Financial Reporting Council (FRC) is set for a massive overhaul following government calls for substantial reform of the accountancy and corporate governance watchdog.

Its chief executive, Stephen Haddrill, and chairman, Baroness Hogg, are expected to issue a public consultation on the changes, which will involve a structural revamp and a refocus of the FRC, by the summer.

Although the FRC survived the "bonfire of the quangos" that saw the Government axe 192 independent agencies in October, the Cabinet Office did say that change was vital.

The FRC has a number of fairly autonomous operating bodies that critics believe take it away from its core focuses. The Government also wants to ensure that audit and corporate governance standards improve in the wake of the financial crisis that exposed the weaknesses of so many major institutions, despite years of strong accounts.

"At a time of budgetary constraint, it is wondered whether it is a good idea to get involved in so many areas," said a leading accountant. "They are likely to ask themselves whether they should focus on big-ticket issues, such as the listed sector and the big auditors."

There have also been concerns that the FRC is bogged down by its rules. If, say, the FRC wants to investigate an accountancy firm for an audit error it has to consult the industry first.

The coalition also wants the body to focus on helping to implement "proportionate" accounting standards. This is a new framework of accounting standards that is to be introduced to simplify financial reporting for small and medium-sized businesses

Mr Haddrill said: "In responding to the Government's wish that we be proportionate, we will be considering exactly what we do and the organisational consequences. Of course, there will be an open consultation."

The Government's professional and business-services group, chaired by Sir Michael Snyder, the chief executive of charted accountants Kingston Smith, has pushed for changes to the FRC.

Buried on page 107 of The Plan for Growth document that accompanied last month's Budget, the Treasury said: "The Financial Reporting Council will consider the professional services sector's concerns about the impact of the regulation of accounting and auditing in the UK, together with views of others, including the House of Lords inquiry into the audit market."

In February, the commercial secretary to the Treasury, Lord Sassoon, told the upper house: "The [FRC] listens to all good ideas for improving corporate governance and is actively on the case."

The FRC's operating bodies include the Accounting Standards Board, which aims to establish and improve financial reporting, and the Professional Oversight Board, which monitors auditors and actuaries.